Answering Today’s Top Dental Transition Questions
With interest rates climbing and recession still in the news, many dental practice owners are wondering whether this is a good time to buy or sell a dental practice. It’s a fair question, given the uncertain economic environment. It’s also a very nuanced one, requiring more than just one answer.
To help unpack it, Cain Watters and Associates sat down with Christy Ratliff, partner at NDP and 7 Pillars. She’s helped thousands of doctors navigate dental practice sales in her career at NDP, a full-service dental transition broker and advising firm. She weighed in on eight questions, ranging from the current dental transition market to what economic uncertainty means for dentists looking to buy or sell a practice.
What is the state of the dental transition market as we enter Q2 of 2023?
We saw a bit of a lull in the market in the middle of 2022 as sellers paused to see where the economy was headed. For the last six months, we’ve seen the dental practice transition market really pick up again as the economic outlook has turned more positive. There’s a lot of opportunity out there from both a private practice transition and a DSO perspective.
Should any current economic factors put practice transition plans on hold?
Interest rates for dental acquisitions are up from the drastic lows we saw in recent years but are still relatively low from a historical view. In terms of a slow economy or recession, COVID-19 proved that dentistry is pandemic-proof. So, my general guidance is don’t put off a transition based on economic factors alone. The most important thing is that you are both financially and emotionally ready. Not sure? A transition advisor can evaluate your status and guide you through the process, helping you decide when the right time is to get into or out of practice ownership.
Is now a good time to buy a private practice?
From a buyer’s perspective, the transition market is healthy. We’re not seeing prices go dramatically up or down. Interest rates are up but still reasonable. So, the question is, are you ready? I wouldn’t let economic factors keep me from owning a practice if that’s the goal and it’s the right practice.
What about selling a private practice?
It really comes down to the individual. Has the market affected their portfolio to a point where it makes sense to keep working a bit longer to further build up the nest egg? Is the practice in good financial shape to be attractive to buyers? Emotionally, are you ready to sell your greatest asset and lose that cash flow? Every situation is different and ensuring you are personally and professionally ready to take this big leap will make your transition more successful.
Is the DSO market still a seller’s market?
Don’t worry, you haven’t missed out on the DSO rush. But not all practices are a fit for the DSO market, primarily due to size, location or seller transition goals. If your practice fits the mold of what DSOs are looking for, there’s still a lot of competition among buyers. If this is a path you are interested in exploring, consulting with a specialist in this market will help you determine if this type of sale is a good fit.
What should sellers know about selling to a DSO versus selling to a private dentist?
The first thing is the price expectation. Sellers to DSOs are seeing bigger offers than private sellers. This can lead a seller to think they can get an inflated number when selling privately. Just because you can get “X times EBITDA” when selling to a DSO doesn’t mean you’ll get a premium when selling to a private buyer. They are two different markets, with two different buyer pools and terms.
What advice would you give dentists looking to sell to a DSO?
Know all the factors involved before signing anything. You will typically be working with the DSO for three to five years, so do your due diligence. In most cases, you’re getting equity in the DSO (in some form), which means market conditions play a factor in the ultimate value. How capitalized is the company? How experienced is their leadership? Are they well-established or a small up-and-comer? It’s your equity at risk. Having someone experienced with the potential DSO buyer to explain the full deal, understand its impact, and mitigate the risk factors is key. No deal is better than a bad deal here.
What’s the biggest threat to both buyers and sellers in this market?
In any market, the devil is in the details. Private transitions are a very arduous, emotional process. Do you really have time to talk to four lenders and take three screening calls a day? It’s not uncommon to lose out on an opportunity, or jump into the wrong one, simply because you’re busy running your business.
The same applies to selling to a DSO. It may seem more cut and dried, but when both your equity and time are tied up for three to five years, getting it right is even more important. Diligence is essential through every step of the process, from LOI to closing.
Special thanks to Christy for offering her perspective on the current dental transition market. Reach out to her and the team at NDP to get answers to your specific transition questions.
Are you financially ready for a dental transition? To talk to CWA about this, the health of your practice, or any other question about your business or personal wealth, our team is here to help. Set up your complimentary consultation today.
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